Ex-CFO: Stanford bribed regulator

Updated 9:17 pm, Friday, February 3, 2012

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This courtroom sketch shows Former Stanford CFO James Davis, replicating for jurors the handcuffing motion he used to make to warn R. Allen Stanford that what they were doing was illegal Thursday, Feb. 2, 2012 in Houston, Texas. Davis, who pled guilty for his part in a $7 billion Ponzi scheme headed by Stanford, testified against the Texas tycoon during Stanford’s fraud trial in Houston on Thursday. less

This courtroom sketch shows Former Stanford CFO James Davis, replicating for jurors the handcuffing motion he used to make to warn R. Allen Stanford that what they were doing was illegal Thursday, Feb. 2, 2012 ... more

Photo: AP

Ex-CFO: Stanford bribed regulator

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HOUSTON — When the federal government made inquiries about his operations in mid-2005, R. Allen Stanford drafted a favorable report on his bank in Antigua, and a regulator there he had bribed for years presented it to U.S. authorities on official letterhead, according to testimony Friday in the former tycoon's fraud trial.

The regulator, Leroy King, former head of Antigua's Financial Services Regulatory Commission, is accused of taking bribes from Stanford including cash and Super Bowl tickets. In exchange, the government alleges, King helped keep the lid on Stanford's fraudulent operations and alerted him to official inquiries.

Documents admitted into evidence Friday show the U.S. Securities and Exchange Commission notified King in mid-2005 that it was investigating Stanford International Bank, an institution owned by Houston-based Stanford Financial Group on the Caribbean island nation.

The discussion of Stanford's relationship with King came during the second day of testimony by the prosecution's key witness, former Stanford Financial Group Chief Financial Officer James Davis — who said that because of the bribes, King gave Stanford a heads-up on the SEC letter.

“One day he called me and said, ‘Stand by a fax machine,'” Davis recalled Stanford telling him.

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The document faxed to Davis was the SEC's letter to King informing him of its investigation and stressing to King that it be kept secret.

“This correspondence is confidential and privileged,” the SEC letter said. “We ask that this letter request and its contents not be communicated to any third party without the authorization of the SEC.”

Davis testified that King's reply to the SEC — printed on official letterhead and confirming the bank's “compliance with all areas of depositor safety” — actually was drafted by Stanford and his general counsel after the two huddled in Antigua with King. The general counsel could not be located for comment Friday.

Davis said King was paid $10,000 to $15,000 to accept phony quarterly investment disclosure forms produced by Davis and Stanford. Davis admitted that he never saw Stanford give the bribes to King, but described seeing cash in an open briefcase, which Stanford said was for King.

Davis has pleaded guilty to fraud charges and is testifying for the prosecution.

King and three Stanford Financial executives face trial later on federal charges detailed in an indictment separate from the 14-count charge against Stanford.

The government alleges that Davis, Stanford and others ran a $7 billion investment fraud, funding risky ventures and luxurious lives using money investors thought was going into safe certificates of deposit at Stanford International Bank. Prosecutors claim Stanford stole $2 billion of depositors' money by taking out personal loans at the bank.

Millions of investor dollars also flowed from the Caribbean bank to a Swiss account controlled by Stanford, and from there to his numerous businesses in the U.S. and elsewhere.

“It was a slush fund,” Davis said. “It was used for whatever the holder wanted to use it for.”

Davis spent a lot of time at an easel Friday, drawing flow charts for jurors to show how he and Stanford concealed losses at the bank, shifted funds to secret accounts and paid bribes to the bank's independent auditor, CAS Hewlett, who died in 2009.

Davis' testimony and flow charts were so complex that at one point U.S. District Judge David Hittner asked jurors if they were following it. When several shook their heads, he guided some of the questioning himself.

Davis testified that Stanford International Bank never turned a profit, but reported one almost continually, except in late 2001 to avoid standing out in the downturn after the 9/11 terrorist attacks.

“My instructions were clear from the beginning — to report a profit,” Davis said. He said he and Stanford fabricated numbers for the bank's financial reports, and that even if Stanford wasn't present when Davis came up with a particular number, he always signed off on the reports.

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His testimony will resume Monday when the trial enters its third week.